Nam Theun 2: A Way to Better Hydro Projects

September 19, 2007

September 19, 2007–– At a recent Hydropower Forum held in Bangkok, environment and social practices under the Nam Theun 2 (NT2) Hydroelectric Project were mentioned as an "example" to be followed.

“I think it would be very good if any project, not only in our country, could follow this standard,” said the Lao Minister of Energy and Mines, Borsaykham Vongdara. He was speaking in early September at the first Lao-Thai High-Level Forum for Sustainable Hydropower convened by the Thai and Lao Energy Ministries and supported by the World Bank.

Newsweek magazine has also recently referred to it s a “kinder and gentler dam,” while a group of social and environmental experts who advise on the project said it had the potential to become a global model.

What sets Nam Theun 2 apart?

One of the defining features of NT2 has been the comprehensive environmental and social measures designed to mitigate potential impacts and to ensure all World Bank safeguards are complied with.

These measures have been put in place along with a programmatic approach that aims to maintain Lao PDR’s macroeconomic stability and economic growth, and targets project revenues to poverty reduction and environmental protection.

Patchamuthu Illangovan, the Lao PDR country manager who has worked on the project for the past five years, said, “NT2 was studied for many years and careful consideration was given to the views of local people and the external stakeholders.

“Financial, economic, infrastructure, social, and environmental measures were designed in response to these views,” said Illangovan.

Before the World Bank approved its support for the project in 2005, it was agreed that it needed to meet the country’s and the communities’ goals: revenues from the dam must be used for poverty reduction and environmental protection programs.

Local communities had to benefit from high-standard resettlement programs and livelihood development activities.

Moreover, a thorough process of consultations and the highest levels of transparency had to be in place. This led to in-depth consultations at the local, national and global level, with feedback from people ranging from villagers in the Nakai Plateau (site of NT2) to civil society organizations working in Tokyo.

The World Bank team says the importance of early consensus building around roles and accountabilities of everyone involved and the flexibility in implementing mitigation plans have also been key.

“We set out to design a project using the best knowledge available — within the World Bank and outside of it — and then to put in place mechanisms that would allow us to closely monitor it,” Illangovan said.

Opposing views

Of course, NT2 continues to have its critics. There are civil society organizations who question whether hydropower development is the right path for Lao PDR and whether the dam is meeting the standards it set for itself. Dialogue on these and other concerns is ongoing to contribute to the discussion on how hydro projects can be developed in the best way possible.

Meanwhile, the Thai counterparts—the main buyers of Lao’s electricity, including electricity from Nam Theun 2, say the project is setting higher standards. “Hydro projects in Lao have shown the world that hydro projects can be environmentally friendly,” said Thai Minister of Energy Piyasvasti Amranand at the recent Hydro Forum in Bangkok.

Hydro Forum Builds on NT2 Experience

The Hydro Forum in itself is testament to the importance stakeholders place on developing more sustainable hydropower projects like Nam Theun 2. The event marked the first coming together of this diverse group of stakeholders to discuss developing Lao’s resources in the most economically, financially, socially, and environmentally friendly way.

“The real test for NT2 is whether it can emerge as a high standard of practice that can be applied to other projects,” said the Bank’s country director for Southeast Asia, Ian Porter. “We need to continue to develop hydropower better—in a way that is beneficial all around, and sustainable.”

The next NT2 implementation update to the Board of Executive Directors is expected in December 2007.

The Nam Theun 2 Project in Lao PDR

To build Nam Theun 2, a $1.45 billion, 1,070 megawatt hydropower project, about 6,200 people in the Nakai Plateau—where the reservoir is being developed—are being relocated. The project has benefited from an unprecedented level of consultations in Lao PDR, a process undertaken by the Lao Government and the project developers, the Nam Theun 2 Power Company(NTPC). In 2004 the World Bank hired an independent consultant to oversee the process and ensure that it was balanced, transparent and meaningful.

The World Bank is supporting the NT2 project through IDA grants and IDA and MIGA partial risk guarantees, because—if properly managed—it will generate much-needed revenue over the long term for poverty reduction efforts in Lao PDR, one of the poorest countries in East Asia. All ten World Bank environmental and social safeguards have been triggered by this project, and the Bank has worked very closely with the Government and the developers to ensure improved living standards for the resettled people, new livelihood opportunities for more than 60,000 people in the downstream areas, funding the protection of a 4,000-square kilometer bio-diversity area, and strengthening the country’s public finance management system.

Nam Theun 2 involves three multilateral banks, three Export Credit Agencies, three bilateral financing agencies, nine international commercial banks, and seven Thai commercial banks.